#USNationalDebt
🔄 1. Interest Rates
Crowding Out Effect: As debt rises, the government must issue more Treasury securities to finance it. This can compete with private borrowers for capital, potentially pushing interest rates up.
Higher borrowing costs: Elevated interest rates increase costs for mortgages, credit cards, business loans, and auto loans—slowing down economic growth.
⚠️ However, when the Fed is actively buying bonds (quantitative easing), this effect may be temporarily muted.
📈 2. Inflation
Short-term: High debt doesn't automatically cause inflation. If the economy has unused capacity, government spending can stimulate growth without inflationary pressure.
Long-term: If debt is monetized (i.e. financed by central bank money printing), it can drive inflation. Sustained high deficits during low unemployment periods risk overheating the economy.
In the 2020–2022 period, pandemic-related stimulus + supply shocks led to debt-fueled inflation.
🧨 3. Economic Growth
Productive use: Debt that funds infrastructure, education, and R&D can boost long-term growth.
Unproductive use: Debt used for consumption or inefficient programs may drag on future growth, as more future income goes to interest payments.
Debt overhang risk: High debt can lead to fiscal austerity or loss of investor confidence—hurting growth prospects.
💵 4. Federal Budget Strain
As interest payments grow (especially with higher interest rates), they consume a larger share of the federal budget.
In FY2024, interest on the debt surpassed $1 trillion, rivaling defense spending.
This can squeeze spending on critical services or lead to higher taxes.
🌎 5. Investor Confidence & Global Impact
The U.S. dollar and Treasuries remain global safe havens. But persistent fiscal imbalances could undermine trust over time.
A loss of confidence might lead to:
Higher bond yields (demanding a risk premium)